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Wednesday, June 15, 2011

Innovation for BoP: EGG-energy's Pricing and Distribution Model

In a recent post, we discussed an innovative pricing model for the Base of the Pyramid with the example of Simpa Networks. This post introduces another innovative pricing model that demonstrates affordability a little differently, along with an innovative distribution model. EGG-energy, Simpa Networks, and the other companies in our portfolio understand that the customers they serve need basic affordability and accessibility.

EGG-energy has a growing number of charging stations and distribution centers in Tanzania, a country where the majority of the population within five kilometers of a transmission line but only 10% has access to electricity.1At the charging stations, EGG employees package grid power into portable batteries to extend the reach of the grid. Customers who pay an initial deposit receive a fully charged battery, and EGG sends a trained technician to their home or business to install the required wiring. Along with batteries, EGG also offers applications like lights, radios, and phone chargers. A great product combined with innovative distribution, promotion, and pricing techniques, EGG-energy makes its products and services highly accessible for its customers.

EGG-energy deserves a lot of credit for its innovative distribution model. As a small start-up, EGG-energy takes advantage of the distribution channel that already exists throughout rural Tanzania to reach its target customer. Partnering with local dukas, “the Tanzanian version of convenience stores” to provide convenient pick-up and drop-off services for the batteries reduces capital expenses and allows the company to make another valuable revenue source available to small business owners. In this way, EGG benefits the local economy by providing energy access, jobs, and a sense of community.

In addition to a clever, market-ready concept and integration with existing distributors, EGG’s pricing model is also innovatively designed for customers at the Base of the Pyramid. There are three basic subscription plans, available on a 3-month (USD$23), 6-month (USD$40) or a 12-month (USD$65) basis. All require a USD$4 deposit. The plans allow subscribers to exchange their battery for free at the charging station each time the power supply depletes. The typical household gets about five days energy usage from a battery for lighting, radio usage, and mobile phone charging. If they exchange the battery at the distribution centers, rather than charging centers, they do need to pay a small fee to cover the extra travel costs.

Not only is EGG-energy’s model affordable, it actually improves customers' livelihood. EGG-energy recently hosted a consultant from ENEA consulting, a firm specializing in energy and sustainability development. Some major findings in the report include:

·“EGG-energy customers typically reduce their kerosene usage by 83%2”

·“EGG-energy customers spend at least 20% less on their annual energy expenditures2”

·“70% of customers surveyed reported that they now feel safer both that they no longer have to worry about the hazards of using kerosene and have a much improved way of identifying nightly visitors to their homes.2”

EGG-energy is another example of an innovative energy solution with an accompanying affordable pricing model. In addition to short-term affordability, EGG-energy’s model is less harmful in the long run than traditional energy sources. By minimizing their carbon footprint and providing truly affordable and safe energy in rural Tanzania, EGG-energy is contributing to the well-being of the environment and improving the lives of the world’s poorest citizens.